Failure to strike deal highlights complexity of task
Published 26/09/2011 | 05:00
THERE was no sign of the longed-for "silver bullet" to fix the economy when four days of high-level talks in Washington ended without a deal last night.
Talk of creating a bigger bailout fund to rescue European states and banks was the main news from the event but policymakers meeting in the US capital failed to come up with any concrete proposals for the plan.
The earliest reaction in the markets came yesterday. In the Middle East money markets that were open for trading all fell yesterday as the US meetings broke up.
The latest disappointment comes after finance ministers and central bankers from around the globe met in Washington for the half-yearly meetings of the IMF and World Bank. Heads of the world's biggest banks were also in Washington for the annual meeting of the Institute of International Finance, the banking trade body.
Despite high hopes, the meetings came up with nothing to turn around the faltering global economy or convince investors that they are not at risk of huge losses if Greece or any one of a number of European banks collapse.
It means markets are set for another week of volatility, with signs last night that markets will sell off today -- continuing the big losses recorded last week.
Bringing financing chiefs from the world's leading economies together was billed as an opportunity to forge a consensus to halt what many banks and economists think is a slide back into global recession. The closest thing to a consensus in Washington, however, were calls on Europe to put its house in order.
US Treasury Secretary Timothy F Geithner set the tone by warning that failure to combat the fallout from the Greek crisis threatens "cascading default, bank runs and catastrophic risk". Billionaire investor George Soros said "something needs to be done" to safeguard Europe's banks because Greece may be unable to avoid default.
Yesterday the IMF all but called on the European Central Bank to print money to prop up its teetering banks and help soak up losses from risky lending.
"The ECB is the only agent that can really scare the markets," said Antonio Borges, the head of the IMF's European department. Mr Borges said it was essential to combine the resources of the ECB with Europe's €440bn bailout fund to come up with a rescue fund big enough to deal with the debt crisis.
Some EU officials backed the call. European Economic and Monetary Affairs Commissioner Olli Rehn, and Klaus Regling, who manages the European bailout fund, both backed calls for a massive increase to the size of the bailout funds.
Senior ECB officials -- who will ultimately have the final say in printing cash -- knocked back the idea.
"It is not helpful that we have an avalanche of new proposals every week," ECB Governing Council member Ewald Nowotny said. (Additional reporting by Reuters and Bloomberg)